Observations – Statistics – Commentary

It has been a rough stretch for some commodity players, with the long-only commodity funds bearing most of the brunt. Speaking of bearing the brunt, Steven Cohen and SAC Capital Advisors have had a pretty tough week. June brings the Managed Funds Association to town for its annual Forum Chicago; CME Group and BarclayHedge will be hosting the second annual Managed Futures Pinnacle Awards on the eve of the conference.

Perhaps the hottest trend in the managed futures sector, though, is the emergence of managed futures mutual funds. For a closer look at these products and, specifically, the Equinox Campbell Strategy Fund, have a look at our video interview with Tom Lloyd, general counsel at Campbell & Co.


Quote of the Day

“The trend in commodity prices recently has not been too favourable but one could argue that there is still a structural bull market in China and inflation in the West is a long-term issue. I would not be recommending clients to shift their allocations into equities given the rise in markets we have seen since last November. Personally I would be advising them to look elsewhere for value, which I believe still exists in the commodity markets.”

Jeremy Baker, senior commodity strategist at Harcourt Investment Consulting in HedgeWeek’s Commodities trading requires disciplined risk management.

June is Managed Funds Event Month in Chicago
On June 19-20, the Managed Funds Association will be hosting Forum 2013, its 19th annual managed futures and global macro strategies conference The event is designed to bring managers and investors together for networking, education and business development. Forum 2013 will be held June 19-20 at the Four Seasons, Chicago.

http://jlne.ws/YNNzrb

In conjunction with MFA, CME Group and BarclayHedge will be holding the second annual Managed Futures Pinnacle Awards, an event which recognizes excellence in the managed futures space.
http://jlne.ws/IW4UDa 
**DA: The entertainment was just announced for the Pinnacle Awards – Fox Business Anchor Liz Claman and comedian Jim Gaffigan

Investors Have Nearly Wiped Out 2012′s Commodity ETF Inflows: SocGen
Barron’s
Dour sentiment in the commodity market continues to exhibit itself in exchange-traded fund flows, where Societe Generale strategists Arthur Van Slooten and Alain Bokobza note this morning that investors have drained nearly as much money from those funds globally as they put in during the entirety of 2012.
http://jlne.ws/15vwPX1
**DA: My take on this trend is that investors are no longer banking on fundamental strength, but rather on continued pump-priming by central banks, which tends to find its way into equity and bond markets, but not commodities.

Once it worked. Now, not so much.
Traders
For years, the Nasdaq Stock Market designated a single market maker for each exchange-traded product. Later, the BATS Exchange treated exchanged-traded products no differently than other equities. No special treatment for trading in ETFs.
http://jlne.ws/16E0kdV
**JK – Interesting look at ETFs and the declining volumes for the product.

Interest Rate Headwinds Will Reverse Gains, Unless Fixed Income Managers Retool: Casey Quirk
Wall Street Journal
Casey Quirk estimates U.S. investors will reallocate $1 trillion away from core, core-plus, government and benchmark-pegged strategies. Higher interest rates would disproportionately impact individuals and defined contribution plan participants, who hold nearly $5 trillion of the aggregate $7.4 trillion U.S. investor exposure to professionally managed fixed income. Even a zero-rate environment would lead to outflows as disgruntled investors seek higher returns.
http://jlne.ws/17SIlRo
**DA: Attention CTAs: All that moolah has got to go somewhere – hope you have your sales force at the ready.

Commodities trading requires disciplined risk management
HedgeWeek
One way to protect against inflation risk is through commodities. These aren’t exactly flavour of the month right now with investors favouring riskier asset classes like equities. But as Jeremy Baker (pictured), senior commodity strategist at Harcourt Investment Consulting, states…
http://jlne.ws/16E4JO5
**JK – From a special report on risk from HedgeWeek.


Lead Stories

A Plea to the Retail Investors
AllAboutAlpha
Bob Rice, author of The Alternative Answer, is Managing Partner of Tangent Capital and is known to viewers of Bloomberg TV as their alternatives investment editor. Much of The Alternative Answer will convey familiar information to those who have followed the quest for alpha over the years. Few regular readers of AllAboutAlpha, for example, will encounter with any sense of novelty the statement that hedge funds employ “dozens of different kinds of strategies” or that futures contracts don’t “provide an immediate ownership interest in an underlying asset.” That’s because the book isn’t written for the cognoscenti. This is a book-length sales pitch – or, rather, a sort of pre-sales pitch – aimed at those who neither run institutions nor count as high net worth individuals.
http://jlne.ws/11Rf469
**DA: Rice shows much enthusiasm for managed futures in the book and, specifically, for managed futures mutual funds. For a primer, see the video we made with Campbell & Co. general counsel Tom Lloyd.

R.J. O’Brien Appoints Julie DeMatteo to Managing Director, Asset Management
Wall Street Journal
R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, announced that Julie M. DeMatteo, has joined the firm today and will serve as Managing Director, Asset Management. DeMatteo, 50, has nearly three decades of experience in futures across various disciplines, frequently involved in structuring products as well as supporting and creating alternative investment vehicles and asset management solutions for clients.
http://jlne.ws/ZHAPoQ

SAC Insiders Said to See Most Client Cash Gone by 2014
Bloomberg
Steven A. Cohen may be left with less than $1 billion from outside investors, down from $6 billion at the start of the year, after today’s deadline for withdrawals from his SAC Capital Advisors LP, according to four people with knowledge of the situation.
http://jlne.ws/15ygOAo
**DA: Redemption Day is Judgment Day. Rumor has it about $3.5 billion is being withdrawn today.

Another legal headache for SAC’s Cohen
New York Post
As if hedge fund titan Steve Cohen didn’t have enough legal woes. The billionaire founder of SAC Capital — who is busy dealing with a federal insider-trading investigation and a bitter court battle with his ex-wife — has been hit with an appeal in a $6 billion racketeering case brought by insurer Fairfax Financial Holdings.
http://jlne.ws/10THurr
**DA: And a punch below the belt and another to the ribs.

Hedge Fund Investors Continue Leaving SAC
HedgeCo.Net
San Francisco-based fund of hedge funds Ironwood Capital Management is planning to pull about $100 million from hedge fund billionaire Steven Cohen’s SAC Capital Advisors, according to a Reuters report.
http://jlne.ws/16E31Mu
**JK – And another.

Hedge Funds Boost Gold Bull Bets Most in Two Months: Commodities
Joe Richter – Bloomberg
Hedge funds raised bets on a gold rally by the most in two months as the U.S. economy expanded less than previously estimated, boosting speculation the Federal Reserve will maintain the pace of stimulus.
http://jlne.ws/11Qsdwc
**JK – Is John Paulson watching this?


Managed Futures/Managed Funds

Harding plans continued success for Winton
Risk.net
It sounds like the start of a bad joke. What do planetary science, extragalactic astrophysics, actuarial science and financial mathematics have in common? The answer is Winton Capital Management, founded by David Harding in 1997. From a rather humble beginning in a small office in Kensington and $2 million under management, Under Harding’s leadership Winton has grown to be one of the largest and most successful investment managers in the world with nearly $26 billion of assets under management.
http://jlne.ws/ZHBeYu
**DA: I have been known to take trading cues from astrology, lunar cycles and such. Almost the same as Mr. Harding, right?

BlueCrest’s Braga on trend-following strategies
Risk.net
The world of CTA/managed futures almost never had Leda Braga. After obtaining a doctorate in engineering from Imperial College, London, she worked as a lecturer and led research projects there for over three years. Love and fate intervened. Braga met her husband at Imperial where he was a couple of years ahead of her. After graduating, he became an options trader and urged her to move into banking where a new area was being developed: derivatives.
http://jlne.ws/ZoiqLi
**DA: I always love stories such as Braga’s – came in through the back door and climbed to the top.

Don’t Trade Commodities, Invest in Them
U.S. News & World Report Smart Investor
It’s been a good year so far for most investments, except commodities. The Standard & Poor’s 500 index, which many consider the best measure of stock-market value, is up around 17 percent as are real estate investment trusts. International stocks are up around 10 percent. Commodities, meanwhile, are down more than 5 percent.
http://jlne.ws/15yyMCR
**DA: In terms of non-correlation, I think the author is confused between long-only commodity investing and managed futures.

Investors to increase hedge fund allocation
Global Investor
Investors are interested in allocating to smaller hedge fund managers, according to a new Aima survey
The Alternative Investment Management Association’s (Aima) Investor Steering Committee has published a new paper on the changing role of hedge funds in institutional investor portfolios.
http://jlne.ws/16E0GkL

European Institutional investors shy away from Hedge Funds
HedgCo.net
This month’s edition of Preqin’s Hedge Fund spotlight shines some light on a change in European investor’s appetite for Hedge Fund investments. Among allocators who invest more than $1 billion in Hedge Funds, 24% came from Europe. Shrinking from 33% in the 2012 report.
http://jlne.ws/16E232M


Pensions & Institutions

Global perspective on Canada’s pension conundrum
Financial Post
With many of Canada’s Defined Benefit pensions experiencing historically high deficits and many employers choosing to do away with DB pensions entirely (or to opt for a hybrid Defined Benefit/Defined Contribution model), Canada’s pension landscape is looking somewhat bleak.
http://jlne.ws/17j3lzI

Prime Brokerage
hedgeweek
One of the most important relationships for any new hedge fund manager is with their chosen prime broker. This is who the manager relies upon for financing positions through margining, providing leverage, lending securities for shorting selling activity, clearing and settling trades. For prime brokerages within universal banks, such as UBS, JP Morgan, Citigroup, the level of support might also extend to fund administration and custodial services.
http://jlne.ws/11zgNqE
**DA: A primer on prime.

Investors explore the ‘low volatility anomaly’  
Financial Times
In an environment where returns on pension funds’ traditional fixed income investments remain mired at historical lows, the advice from consultants and other investment advisers is clear: allocate money into asset classes seeking higher returns and take measures to manage the extra risks that they carry. This way, pension funds stand a better chance of meeting their increasing obligations to beneficiaries, while controlling the extra levels of risk.
http://jlne.ws/15yE1SR
**DA: My concern is that much of this so-called “enhanced risk management” involves being the first to hit the “dump” button when things get ugly. Or, in the case of municipal pensions, sending the bill to the taxpayers.

Illinois Senate soundly defeats Madigan pension reform plan
Chicago Tribune
The Illinois Senate tonight overwhelmingly defeated a major overhaul of the state’s heavily indebted government worker pension systems, throwing into question whether cost-saving reforms will be approved before Friday night’s adjournment deadline.
http://jlne.ws/11gUQ0B
**DA: The pension mess in my home state is a slow-motion train wreck. Unfortunately my suspicion is we are simply ahead of many other municipalities in terms of reaching the crisis state.

PBGC bares fangs in deals that could end in DB plan terminations
Pensions&Investments
Increasingly sophisticated deal financing involving companies with large pension liabilities is spurring the Pension Benefit Guaranty Corp. to play a more active role in the process.
http://jlne.ws/15yLT72
**DA: Nipping it in the bud.

 

Regulation

Managers brace themselves for the regulatory ride
Financial News
Nearly half of the chief investment officers surveyed in Financial News’ Investment Barometer believe that regulation could strangle the asset management industry; 38% said it wouldn’t and the remainder weren’t sure.
http://jlne.ws/13gw1oS
**DA: To be fair, regulators didn’t just up-and-decide to overhaul the rules. That little financial crisis thingie a few years back sort of greased the skids.

First Deutsche CTA fund to close in response to Esma review
CTA Intelligence
One of the Deutsche Bank CTA-based Ucits funds placed under review following European rule changes is to close and the manager is launching a new standalone vehicle with no commodity exposure. The DB Platinum AIMhedge Index, which has around $19m in AuM, is set to close by the end of June following new European Securities and Markets Authority rules restricting the use by many CTAs of an index and swap structure to gain commodities exposure.
http://jlne.ws/11zpbX7
**DA: Cantab was the first to announce it would be closing its UCITS fund, and now Deutsche is reviewing its funds for possible restructure or closure.

EU hedge rules await thumbs up from CFTC
City A.M.
Europeanfinancial regulators have failed to strike a deal with US watchdog the Commodity Futures Trading Commission (CFTC) over incoming hedge fund rules, just weeks before the new regime is due to come into force. The European Securities and Markets Authority (Esma), the rule maker for Europe’s financial markets, yesterday said it had inked agreements with 34 watchdogs around the world to clarify how incoming rules on alternative funds will be applied to non-EU funds.
http://jlne.ws/19Cs4hD

OTC earthquake shaking up futures clearing
Tom Osborn, Risk.net
Like any earthquake, the advent of mandatory clearing in over-the-counter derivatives markets is shaking a lot of other things up as well, including the futures clearing landscape. As clients go looking for a firm to handle their OTC business, many are also reviewing their choice of listed derivatives clearers – a rare event for relationships that can date back a decade or more – because of cost, operating and margin efficiencies that may be attainable when clearing both types of business with a single firm.
http://jlne.ws/17DkrsW

NYSE Liffe Plans July 1 Clearing Transition to ICE Clear Europe
Benzinga
NYSE Liffe, the derivatives division of NYSE Euronext and ICE Clear Europe, a wholly-owned subsidiary of IntercontinentalExchange, today announced plans to begin clearing the London-based derivatives market of NYSE Liffe on Monday, July 1, 2013, following successful testing with Clearing Members in recent weeks. Subject to relevant regulatory approvals, the transition process for open positions will occur over the weekend of June 29-30, 2013.
http://jlne.ws/11mtoBU

US hedge funds threaten to flee Europe
by Madison Marriage, Financial Times
A number of large US hedge funds have scrapped plans to enter Europe and have put existing operations under review in response to new, burdensome European regulation. Their retreat comes in response to the arrival of the Alternative Investment Fund Managers directive, which was drawn up by European lawmakers to rein in the hedge fund, private equity fund and real estate fund industries.
http://jlne.ws/1315Ocg

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